Thursday, May 20, 2010

State pensions a federal issue? I don't see it.

Joshua Rauh, associate professor of finance at the Kellogg School of Management at Northwestern University said that, without reform, some state pensions might run out within the decade. By 2030, as many as 31 states may not have the money to pay pensions. And, if these funds exhaust their assets, the size of payments for the benefits they have promised will be too large to cover through taxes, putting pressure on the federal government for a bail-out that could potentially cost more than $1,000bn, he says.

“It is more than a local problem,” Mr Rauh said. “The federal government could be on the hook.”

I understand that the retirees will get the shaft. I don't see how that is the federal government's issue, unless some branch of the federal government is going to prosecute the governor, state legislators, and all the state employees who supported this and helped the process along.

Even if the federal government does that I fail to see how the people of one state are liable for the pension plan in another state, which is what Mr. Rauh means when he says "the federal government could be on the hook". If I promise to give you $1 million and it turns out I don't have the cash to fulfill that promise I don't think you can go to my neighbor and force him to pay up.

I don't know about you but I don't want to pay for some clerk in the IL tax collectors office to live 30 years in retirement while I have to keep working.

In a way I'm kind of laughing a little inside because for years I've heard how wonderful and secure state jobs are and I've heard people with those jobs brag about how they didn't have to worry about being laid off or retiring or anything else. I know that is mean but I can't help laughing just a little.

More from the article:

Many states base their calculations on an 8 per cent annual return and use an accounting method called smoothing, which staggers gains and losses over several years, two factors that some observers warn could mask the size of the shortfalls.

If that is the case then maybe a state agency (or the federal government) should find out who decided to use that silly method, prosecute them for fraud, and put them in jail. If they were appointed then the idiot that appointed them should also be prosecuted.

More:

States have begun reforms, with some lowering return expectations and raising employee contributions and retirement ages.

Mr Rauh said such measures were cosmetic and states needed comprehensive, federally sponsored reform that would require closing the systems to new members, shifting state workers to Social Security and individual plans similar to those that are used by the private sector in order to obtain incentives to borrow to bridge the gaps.

As far as I'm concerned if social security is going to exist then EVERYONE should be forced the throw away their money on it - including state employees, congressmen, and the President. This is coming from someone who thinks social security is the biggest ripoff ever forced on the population of this nation.

There is one part of that I don't understand: "to obtain incentives to borrow to bridge the gaps". What is the guy talking about? Is he saying states should borrow more money?

I don't think state employment should be a meal ticket for life and I think it is wasteful to allow government employee unions. If the state made a contract then they should fulfill it at the expense of the citizens of that state. The federal government should not pick up a penny of that cost. If the state goes bankrupt and collapses then the people who put all their eggs in that basket and didn't make alternative retirement plans are out of luck the same as if they worked for a private company that went bankrupt.

1 comment:

The problem with pension programs is that they are set up as ponzie schemes. Social Security/Medicare is clearly the 800 lbs gorilla sitting in the corner that nobody wants to talk about.

I can't speak to all state employee pensions, however in my case (yes, was vested and receive a small pension from state government of just over $1K per month), I contributed 27% of my salary to the pension fund, not because I'm frugal, but because that is how it was set up. Yes, the money I put into the fund, if one does not count the interest, and even if one does, would in no way last until I shuffle off this mortal coil.

Even if you consider the people who were fired/who quit, etc. before their vesting moment and lost their 27%, there's still not enough to go around without new bright faced government drones who trudge off to work every day with the promise of eventually retiring.

It's not the Federal Government's problem. It's the State Government's problem and the problem of the taxpayers in the state. For some reason, the progressives have convinced people that there is some federal mandate to provide "equal outcomes for all" rather than to insure equal opportunity under the law (a very different proposition).

The Federal Government needs to back off, out of our lives except to the extent that it's Constitutionally permitted in them. It doesn't matter if the States have bad spending habits -- people, companies and even states should be allowed to fail if they're foolish.

--woe to the pensioner who trusted that the program they bought off on was a sort of fraud.